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Exam 17: Tax Practice and Ethics

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Question 41

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Michelle, a calendar year taxpayer subject to a 25% marginal Federal income tax rate, claimed a Form 1040 charitable contribution deduction of $275,000 for a sculpture that the IRS later valued at $200,000. The applicable overvaluation penalty is:

A) $0.
B) $3,750.
C) $7,500.
D) $18,750.

E) C) and D)
F) A) and C)

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Question 42

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An individual is not subject to an underpayment penalty until more than $ is due and unpaid through estimated taxes.

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Question 43

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Jake, an individual calendar year taxpayer, incurred the following transactions. Assuming that any error in timely reporting these amounts was inadvertent, how much omission from gross income would be required before the six-year statute of limitations would apply?

An IRS letter ruling might determine that an employee's compensation is unreasonable in amount.

Jaime's negligence penalty will be waived, under the reasonable cause exception. He told the court, "My taxes were wrong because I couldn't understand the tax law."

The "IRS's attorney" is known as the Chief Counsel.

Maria and Miguel Blanco are in the midst of negotiating a divorce. Because both parties are unwilling to share any current financial information, their joint Form 1040 for 2014 is not filed until October 31, 2015, when the respective divorce attorneys forced them to cooperate. The Blancos should not be subject to any Federal late-filing penalties, because the reasonable cause exception applies to their family discord.

Which of the following statements does not reflect the rules governing the accuracy-related penalty for negligence?

Match each of the following tax penalties with the type of tax penalty as specified by the Code. A letter can be used more than once. The correct solution may include more than one letter. a. Taxpayer penalty b. Tax preparer penalty c. Appraiser's penalty -Fraudulent failure to file a tax return.

The tax professional can reduce the chances that staff personnel will incur IRS preparer penalties by adopting a "tone at the top" that stresses integrity, diligence, and other elements of an ethical tax practice.

Faye, a CPA, is preparing Judith's tax return. Last year, Judith's return included dividend income from the P&G Company. This year, Judith reports no such income. Faye should inquire as to whether Judith sold the P&G stock during the year.

For each of the indicated tax penalties, indicate the appropriate taxpayer defense. A letter may be used more than once. Not all of the letters might be used. a. Ignorance of the tax law b. Reasonable basis c. Reasonable cause d. Complexity of the tax law e. Substantial authority f. Disclosure on return -Failure to deposit withholding tax.

For each of the indicated tax penalties, indicate the appropriate taxpayer defense. A letter may be used more than once. Not all of the letters might be used. a. Ignorance of the tax law b. Reasonable basis c. Reasonable cause d. Complexity of the tax law e. Substantial authority f. Disclosure on return -Negligence in filing a return.

In taking a dispute to the Appeals Division, a written protest is required of the taxpayer when the proposed deficiency exceeds $____________________.

Lola, a calendar year taxpayer subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Redd, valuing the property at $70,000. The IRS later valued the gift at $100,000. The applicable undervaluation penalty is:

The tax penalty imposed on appraisers:

In connection with the taxpayer penalty for substantial understatement of tax liability, what defenses (if any) are available?

Maria did not pay her Federal income tax on time. When she eventually filed the return, she reported a balance due. Compute Maria's failure to file penalty in each of the following cases. Disregard any failure to pay penalty. a. Three months late, $500 additional tax due. b. Four months late, $2,000 additional tax due. c. Ten months late, $10,000 additional tax due. d. Four months late due to fraud by Maria, $10,000 additional tax due. e. Fifteen months late due to fraud by Maria, $10,000 additional tax due.

The IRS can pay an informant's fee of up to % of the recovered tax, interest, and penalty amounts. The reward can be as high as % for information provided by a "whistle blower."

The AICPA's Statements on Standards for Tax Services provide principles­based guidelines as to how a tax professional should conduct business.